Grocery and catering distributor Kitwave (LON: KITW) is negotiating the inflationary environment successfully and going from strength to strength. Even stripping out the latest acquisition, organic growth is 17%. The interim results have sparked another forecast upgrade.
Kitwave raised £64m at 150p/share back in May 2021. The latest announcement pushed up the share price to 326p. Kitwave is one of the top 25 best performers on AIM so far this year with a 69.8% increase. The interim dividend has been raised by 50% to 3.75p/share.
Experienced management and increasing scale are enabling Kitwave to prosper.
All three divisions are growing strongly. Ambient grocery and frozen and chilled divisions both grew organically. The fastest growth was in food service, which includes the recent acquisition fresh produce wholesaler WestCountry Foods. Food service has the highest gross margin.
A new integrated 80,000 sq ft distribution hub is being constructed in south west England to combine the WestCountry Foods and MJ Baker businesses. This should be completed in the middle of next year.
In the six months to April 2023, group revenues were 23% higher at £275m, while underlying operating profit jumped from £7.3m to £11.7m – reflecting an improved operating margin of 4.3%. Pre-tax profit improved from £5.6m to £8.3m.
More business is coming through electronic ordering and that should help to reduce costs in the longer-term. Order levels are also higher online.
Net debt is £37.2m following the acquisition of WestCountry Foods, but cash generation remains impressive, and this figure will reduce significantly over the next couple of years if there are no more acquisitions. That is unlikely because management is on the look out for further add-on acquisitions, particularly in the food service sector.
Canaccord Genuity has increased its 2022-23 pre-tax profit forecast from £23.6m to £27.5m, compared with £18.9m last year. In 2021, the broker was forecasting earnings of 14.1p/share for 2022-23 and this has been upgraded a number of times. The current forecast is 29p/share. The dividend forecast has gone from 7p/share to 11.2p/share over the same period.
This shows that the growth is not just coming from the acquisitions. The prospective multiple is less than 12 and the yield is 3.5%.
